The word hawala
originates from the Arabic root which means ‘to transform’.It also known
as hundi or - in Somali, xawala or xawilaad.

It is told that
this system came into existence in the twelfth and thirteenth
centuries for facilitating trade along the silk route.

Simply speaking,
in hawala, the money is transferred from one place to another, without any
actual movement of that money.

This is unique
in nature. It is distinguished from other remittance systems by the trait
of trust which prevailed amongst its stakeholders.

Who
are the current users of this informal network?

Migrant workers

Terrorists (to
fund their activities)

Politicians

Underworld/drug
lords

What is the MECHANICS behind the working of HAWALA
?

To understand the mechanics behind the hawala
transfers, consider this example.

Hawaladar 1in Karachi is approached by a remitter to transfer the money to his friend, the
recipient in Delhi. Hawaladar 1 accepts the payment in the local currency.

He
later contacts his counterpart
hawaladar 2 in Delhi to pay the recipient. To confirm their identities,
both the remitter and the recipient are given a password. Through a phone call,
the remitter and the recipient read the alternate digits of the password. If
this is done correctly, the identity thus established, will allow the hawaladar
2 in Delhi to pay the recipient in Indian rupee.

In this process, the output money is
from hawaladar 2 in Delhi. This means that the hawaladar 1 in Karachi, is
creating an informal debt to his counterpart in Delhi.
This debt has to be settled. Usually, for better settlement process, the
hawaladars are relatives. Sometimes, the debts are covered through reciprocal
transfers (in this case: a transfer from Delhi to Karachi). If there are no
reciprocal transfers, the settlements are done through courier, postal cards, wired transaction, checks or bank transactions.

When
we say bank transactions, this means that both hawaladars in India and Pakistan
have their bank accounts in cities such as Dubai, Singapore, London, Hong Kong
and other conducive places. This allows them to settle their accounts in a
single country and helps to serve their customers efficiently. Cities like
Dubai are free trade zones, where there are no regulations on movement of goods
or currencies. Having bank accounts in such countries with hard currencies
helps them in conversion to other currencies.

There
are all sorts of advantages for choosing hawala transfer system, over the
formal money transfer system offered by banks or any other global payment
companies.

Advantages of HAWALA ?

Firstly, the
time consumed for a transaction in the hawala system is a matter of few
hours. But the transfers through formal remittance agencies typically take
days or weeks.

Second is the
minimum fee charged. In the formal system, the fee charged from the
remitters revolves around 10-20 per cent of the total amount transferred.
Contrastingly, in hawala, it is only around 0.25-1.25 per cent of the
amount transferred.

Third is the
risk factor involved. In hawala, the risks exist only at the agent level.
Even if the hawala agents are caught, it would be intricate to trace the
trail of the money involved.

Lastly, the most
important advantage is the space provided for anonymity. Unlike formal
transfer system, there is no requirement for the stakeholders to disclose
their identities. This characteristic feature makes terrorists and other
criminals to choose hawala over the formal system of remittance.

How Hawala system works in case of KERALA for Migrant
workers ?

Many in Kerala believe that hawala is not just pure
economics; it's also a social system.

A hawala agent operating out of Dubai explains the
dynamics.

"A worker gets just one weekly off on Friday. It is
the weekly off for banks and money transfer agencies.

The worker just gives us a call and we collect money from
his doorstep. In times of need, or family emergency, he can borrow money
from us and we deliver money immediately to his home.

Which banking or money transfer agency will provide such
services and credit? It's all trust, no elaborate paperwork.

Is Hawala Illegal?

Yes,
Hawala has been made illegal in
many countries, as it is seen to be a form of money laundering and can be
used to move wealth anonymously.

As
hawala transactions are not routed through banks they cannot be regulated
by the government agencies and have thus emerged as a major cause of
concern.

This
network is being used extensively across the globe to circulate black
money and to provide funds for terrorism, drug trafficking and other
illegal activities.

In
India, FEMA (Foreign Exchange Management Act) 2000 and PMLA ( Prevention
of Money Laundering Act) 2002 are the two major legislations which make
such transactions illegal.

White Hawala

Experts
emphasized that the overwhelming majority of those who used these
informal networks were doing so for legitimate purposes, and simply
chose to use a transaction medium other than state-supported banking
systems.Today, the hawala system in Afghanistan is instrumental in
providing financial services for the delivery of emergency relief and
humanitarian and developmental aid for the majority of international and
domestic NGOs, donor organizations, and development aid agencies.

Black Hawala

Money
used for funding terrorist activities

How did the demonetisation move impacted the hawala
system ?

The heat of
demonetisation has been felt heavily by the hawala users and its
operators.

As per the
reports of Central intelligence agencies, the call traffic by hawala
agents in India has dropped by 50 per cent.

There have been
several reports of busted hawala rackets across India.

The people who
were running these rackets were involved in illegal conversion of old
currency notes. Some RBI officials were also held for facilitating them.

Similarly,
a Thane-based chartered accountant, Rajesh Agarwal and his colleague were
arrested by the police. They have been operating a racket for the last two
years. The police have found documents that prove Agarwal floated six companies
in the names of his office employees. Furthermore, reports on busted hawala
rackets in the Indian airports also occurred in several news platforms.

How
Hawala worked in case of Kashmir's manufactured unrest post Burhan Wani ?

The Indian
intelligence agencies have dug out the call details of the conversations
between Pakistani handlers and the Hurriyat Conference.

Post the
encounter of BurhanWani, Hafiz Saeed and Syed Salahuddin, the chiefs of
Pakistani terror outfits, joined hands to foment violence in the Kashmir
valley.

The
duo collected the donations across different parts of Pakistan, to fund
the Hurriyat Conference. Hurriyat leaders run eight trading companies to
receive these funds through hawala. The funds received are managed and
distributed by them. The annual funds
received by them revolves around Rs 1,000 crore.

In addition to
fake currency notes, the funds transferred through hawala are crucial, as
the stone pelters can only be paid by original currency notes, not by fake
notes.

Post
demonetisation, there have been several reports of bank robberies by
militants, to overcome the cash crisis.